- Despite having Mid-Caps and Small-Caps, our Portfolio has withstood Volatility and maintains the Lead over SENSEX.
The Markets have undergone through tremendous pain over the last few years with the Markets getting narrower and several Stock getting beaten down badly. This has been one of the toughest Phases, even for Seasoned Investors. While it has definitely been tough for us too, we have been able to perform much better than the Broader Market Indicator - SENSEX. More specifically, considering the fact that our Stocks are mostly Mid-Cap and Small-Cap companies - our Relative performance is certainly Boastful.
This Clearly shows that, our Stock Picking abilities has enabled us to pass through these times of Crisis. We also know that, this Phase has sharpened our Research Skills and matured us to become better Investors. With the current set of 12 Stocks, we are pretty sure that - Our Lead over broader Markets will continue to inch higher going forward. There is a lot of conviction in these stock Ideas and our Portfolio construction should help us stay in good shape.
Over the last Month on
May-15, we had partially
booked Profit in Poly Medicure and Invested our Capital in one of the
best Mid-Cap IT Stock. This was the significant event of the past month in our Portfolio. You can also read through the Newsletter for this Month below,
Dear Members of the Millionaire Portfolio,
Indian stock markets had a good month of
May with the SENSEX rising by about 2.5% and contrary to the market saying of
"Sell in May and go away".
What has been very surprising has been the strength in the Markets despite the
Currency weakness. Rupee - Dollar conversion is at a 10 month low of around
56.5 and very near to its all time low. The real picture has been the
strengthening of the Dollar and not the weakness of Rupee as such. But while
several countries across the globe have been trying to devalue their currencies
for competitiveness, this is not a bad situation to be in. Considering the fact
that, this is coupled with softening Commodity prices - Rupee weakening is not that much a big negative for India.
Global Equity Markets are on a Roar on
the back of continued Liquidity. Certainly in the Short to Medium Term - Equity
performance are more a function of Liquidity and Sentiment. This can be proved
from the fact that - Pakistan (One
of the most Vulnerable country on Political and Macro stability terms) and
Germany (Epicentre of Euro Crisis) are sitting at life time Highs. Other than
this, anyways we know that both the NASDAQ, Dow and Nikkei are inching upwards
continuously.
Indian Stocks continue to be buoyant
with the Markets continuing to inch towards lifetime Highs. Despite the Markets
rallying towards Highs, there is no change in Sentiment across the Street. In
fact, there is a huge disbelief in
the Rally and everyone expects the Rally to fizzle out and markets to grind
down going forward. Being a student of Market, we clearly understand that -
Market never goes in the direction of consensus and hence it would continue to
surprise many and will suck up the
non-believers of the rally before any significant correction.
Other than that, we believe there is
a case to be made for a secular Bull Market which can last for many more years.
While the Political process and Global Macro needs to be supportive for this
Multi-Year bull market - we understand that "Bull Markets climb wall of
worries" and hence these issues will get
settled as time goes by. While there can be uncertainty, there is no better
time to Invest like a period of Uncertain markets. Even in a overall difficult
scenario, there is a case for several good stocks to compound strongly.
While Indian Markets are inching
towards its highs, there are several stocks which are way off behind their High
points and in fact trending lower. This can be seen quite evidently from the Breadth of the markets. Markets are
moving up with a select set of stocks which we believe, will spread over a
period of time. We are not into beating Markets Quarter on Quarter and hence
will not chase Momentum. We are ready to underperform in the short term for
better Long Term performance.
You can see that the last year has
been a difficult one for Value Investors where we have seen Costly stocks
getting Costlier and Cheap stocks getting cheaper. But as History shows, this polarization cannot continue for a long
time and if an Investor can pick up the right set of stocks and has conviction
to digest the volatility - there is potential for Huge profits in select stocks.
We believe that our Portfolio consists of lot of those stocks, where the
potential for a 3 Year investor is huge irrespective of the Macro situation.
We would also like to write about our
Views on the most important debates of our time. There has been several
viewpoints on Quantitative Easing, Austerity, Bond Yields, Emerging Markets,
Fiscal Deficits etc. The more important question in the minds of most Global
Investors who drive markets are that of withdrawal of this Liquidity.
Japanese Stock Markets has shown some
shakiness with the Nikkei which has been on fire from the start of the year
witnessing over 14% correction over
this month. The jitters in stock markets primarily come from the early
withdrawal of stimulus of Quantitative easing which has flooded the stock
markets across the globe with huge liquidity. So, any data which points to this
liquidity withdrawal has a huge impact on stock markets. There has been an Macro experiment on an unprecedented
scale and everyone is nervous about how the whole thing is going to end.
Everyone knows that, Central Banks across the
Globe are continuing to flush the world with Liquidity and there is also no
doubt that it's a liquidity driven rally.
We are also knowing that there is enough money in Japan to provide a 10X
multiplier effect on the Credit. There is similar 5-10X potential credit which is being unused as there are no real
borrowers. While the pessimists see this as a potential threat to flare up
Inflation going forward, the Keynesian Economists look at it as the seriousness
of the crisis and justify their unconventional Quantitative easing. Everyone
agrees the fact that this Quantitative easing will build up asset bubbles
across Equities and other Yielding asset classes. But this alternative is
looking far better that the Austerity as imposed by Europeans without giving a
thought about the Reflexivity of Markets.
While this can't be a solution to the Structural issues which these economies
face, it at least provides space for this correction along with incremental
improvements as we move forward. This is allowing a repair of several personal
and corporate Balance sheets and helping the Economy to slowly get off its
feet.
While the whole Market participants are
speaking about the withdrawal of Stimulus continuously - we believe that, either
the Prices are already factoring it or it is not going to have such a big threat
as being projected now. We have time and again seen that the majority always get its wrong and big
Cracks happen when something comes out of the blue and not an issues which are
being widely discussed. Just to give a snapshot of these things over the last
few years there has been several sayings like - "Dollar is going to
collapse, USA will lose its Economic supremacy, Gold will reach 10000 $'s, Euro
Zone is history, Interest rates will move up etc". While the real problems
of Subprime crisis, the PIIGS issue was never widely discussed and these were
the real game changers in the market. This makes us believe that, a widely
debated stuff like Stimulus withdrawal will not have a major effect on the
Global markets over the medium term.
Leaving
aside these Behavioral points, even Economic sense says that - a slow and steady recovery can't initiate an
Inflation trigger or Credit bubble. While there certainly can be
corrections and Irritants in the way, we believe that the world will come to
terms with a Post QE scenario and it should not fear us as being projected by
many. One real risk which we see are the fact that - Once Bond Yields starts to
rise, there is huge scope of losses which the Global equity markets are staring
at. Mostly on the banking side, where there will significant losses on their
Bond Portfolios. We believe that with a slow and steady recovery, a smooth
withdrawal can be managed or at least will not create the damage as some of the
Nay Sayers will make us believe.
Two clear areas which are getting
heated up and where need to be cautious, are the Global Equity markets in
general and the debt markets in Emerging countries. More importantly, flows
into emerging markets Debt Markets is huge and there is a bubble building up.
For example, Rwanda raised 400 Million
$'s to build a convention centre and this clearly shows the amount of
liquidity which is sloshing around. Also Junk bonds and other risky instruments
are moving up swiftly. While these bubbles will be the side effects of such
Monetary response and they would get corrected, but the Doom scenario is
unlikely to happen as discussed by several Analysts.
Here comes the real risk which we are
concerned with. India is much more vulnerable to these Liquidity bubbles, considering
the huge Current Account deficit. Without
enough money flowing into Debt and Equities, we cannot finance the huge
Deficit. Hence there will be some Volatility going forward. We as investors
need to live with this Macro Economic volatility and hence it is very important
to have a pretty long term mindset while investing in good businesses.
These Events and Market actions have
an impact over a 1-3 year time frame, as we have seen before. But over a 3-5
Year time frame, Returns on our Bottom
up stock picks will get decoupled and there will be enough opportunities
for a smart Investor. Hence, we believe that whatever may come - there is
significant wealth creating opportunities in several of our stock picks, if we
are ready to Hold on to them. There is no questioning the fact that, in these
Volatile times - it can be your best bet amongst all asset classes.
Let us come to our Individual stock
picks. We believe that the Portfolio has delivered mixed results in the Quarter gone by. While some of the earnings
has been disappointing like B**s, there was good numbers from
D***H, I**L, C****a etc. While Incrementally there has been
improvement in the performance of H**L and S***s - they continue to be
under short term stress. While H**L's earnings visibility has improved quite
considerably, Sanghvi Movers still is affected by the CAPEX slowdown in India
and hence may take a much longer time to recover.
We believe that the Portfolio
continues to have good Businesses and adequate diversification. While the near
term Out-performance can't be guaranteed, with a good Investing framework which we follow - the long Term Alpha
creation and Out Performance will definitely be there.
Regards,
Gokul Raj. P [ Principal Fund Manager ]
To know more about our Portfolio Advisory Service (TMP) and the Stocks which we have in our Portfolio, you can call us at 09845859071 and discuss with our Senior Research Analyst.
